The Shakedown 5/8/22

LAST WEEK, S&P 500 (-0.16%)

Monday:  +0.60%

Tuesday: +0.46%

Wednesday: +3.05%

Thursday: -3.55%

Friday: -0.60%

If you don't pay too much attention to markets, you might pick up a Wall Street Journal this weekend and see the S&P was nearly flat last week and think, "Ah, quiet week on Wall street." We know that was anything but the case as markets went on another wild ride.

A meeting out of the Federal Reserve took center stage this week with Jerome Powell and crew raising interest rates by 50 basis points for the first time in decades. Investors originally showed signs of optimism as the Central Bank's outlook was much less hawkish than most expected as Powell said there wouldn't be any 75bps hikes which the market greatly feared. Upon this announcement stocks soared as the market seemingly went straight up 3%. Those soaring stocks were taken back down to earth Thursday when the S&P saw its worst day of the year, and one of the 15 worst days in the past decade. Frankly, it was one of the best bull trap I've seen in all my days of hacking away behind the screens. Times like this, a traders #1 job is to manage their capital wisely and not put yourself behind the 8 ball for the easier times when all these headlines are eventually behind us.

Charting this weekend made the sector strength pretty obvious. Utility and Energy stocks are the only sectors showing many promising long setups, so I'm looking for those sectors to continue to lead. Tech continues to sell every pop as the rate hiking Fed schedule will not allow these stocks to run. We've seen the tech darlings like AAPL and MSFT hold up extremely well all things considered as most in their sector have been gutted. I'm thinking once these names finally break their uptrends is when the broad market finally breaks that massive support its sitting on, which could definitely be this week. If I see AAPL crushing bids and heading lower, I'll look for a short through that 113 pivot. Commodity stocks continue to rise and you'll notice an agricultural stock setting up as the trade of the week. In my view these names continue to trend higher this week.

As far as news goes this week, we have more inflation data to look forward to this week. These numbers have been market movers and there were hopes that these numbers may have peaked last month, so we'll get some great information regarding the economic backdrop when we get the CPI data Wednesday.

The name of the game right now is risk management. There's no reason to load the boat in any setups right now as the constant market volatility is whipsawing stocks up and down. The overarching lesson I've learned over the years is quite simple - in trading, there are easy times and there are hard times. When the easy times are here, you want to be in that seat every single day and take every single setup that aligns with your strategy. When the hard times are here you need to be extra careful with any risk you put on because the probabilities aren't overwhelmingly on your side as they are during the easy times. Unfortunately we're dealing with the latter and we're likely to be in this environment for the next couple of months.

The two most important words any traders can utter is Risk Management.

Here's the heat map from the last week where we can really get a better idea of sector strength. Every sector was under pressure except for energy and utilities. There are pockets of strength in healthcare. But I fully expect utilities and energy to continue to lead considering the action we saw this week. 

Earnings This Week

BG Long

Bunge Limited, BG, is an American agriculture business that supplies the world with agricultural commodities such as grains and seed oils. They're also a massive exporter of fertilizer for farmers. Commodity stocks have been the beacon of strength in this market and this BG looks for the trend to continue as it's created upper level support at 113 and wants to trend higher from here. Looking for an entry through Friday's high in the 115.60/116 resistance area.

Trigger: 115.60/116

Stop: 112.89

Target: 125-127+

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